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Let me turn to the much less controversial area of wind. I know that not all noble Lords think that we should put all our eggs into the wind basket. Nor indeed do the Government. Wind will have an important role to play as far as future energy is concerned. All the signs are that there is now real momentum in
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It is not just wind. The noble Lords, Lord Oxburgh and Lord Palmer, were absolutely right to put emphasis on the other technologies. Last week I visited MCT in Strangford Lough which is a tidal technology which looks to be very promising indeed. The noble Lord, Lord James, said that we were missing out on geothermal. I would point out to him that of course there is potential in Cornwall, the county of the noble Lord, Lord Teverson. The Government have made money available to support its development. Of course the noble Lord is right about energy efficiency and about the smart grid. We are not being complacent; we will come out in the summer with much more detail about smart meters, which I see as an essential foundation of a smart grid. We do not underestimate the potential at all.
I was very interested in the comments of the noble Lord, Lord Oxburgh, about unconventional gas, particularly the potential for shale gas. I am sure that he is right. There are two issues here. The noble Lord did not mention the potential of UK exploration of shale gas and oil. We have commissioned the British Geological Survey to carry out that assessment. He is also right about the potential implications of LNG on our facilities for imports, given that the US is now unlikely to be a strong recipient of LNG sources of supply. Again, this Government's foresight in setting a positive context for LNG import facilities to be developed has come to the fore.
I was very glad that the right reverend Prelate the Bishop of Durham took part in our debate. We recognise that coal gasification has potential. The Coal Authority has recently granted six conditional licences for underground coal gasification, including one in the north-east, and is considering a further five applications. The technical and economic viability of this approach has not yet been demonstrated but we want to play our part in creating a regulatory environment that helps rather than hinders those ambitions. Coal power projects that utilise underground coal gasification will be considered for our planned CCS demonstration programme. So I do not accept that we are lacking in enthusiasm for gasification; we understand its potential.
I come now to coal and CCS. The noble Lord, Lord Wallace, and my noble friend Lord Woolmer talked about the importance of coal and of developing CCS technology. The International Energy Agency predicts that demand for coal will increase by some 70 per cent over the period to 2030. That makes it clear that unless CCS technology is developed and deployed, I do not see how we could hope to meet the kind of global emission reduction targets we want to meet. That is the critical importance of carbon capture and storage.
My noble friend Lord O'Neill cautions us about overclaiming what the UK can do in terms of technological lead. I know that other noble Lords think that we are not progressing CCS fast enough. I certainly agree with my noble friend that we cannot afford to be complacent, but the fact is that we are making considerable progress. We have very important coal reserves, which is why CCS is important in this country. But it is also important in terms of what it can contribute to emission reductions globally and the potential for the UK to export technology, skills and the expertise that will be developed as a result of the work that we are undertaking.
We are making progress. No other coal-dependent country has a policy that no new unabated coal-fired power stations will be built. No other country has developed the kind of financial mechanism that is in the Bill. The noble Lord, Lord Jenkin, is right that we have recently awarded funding to E.ON and Scottish Power for detailed engineering and design studies. FEEDS-front-end engineering and design studies-are used by project developers to examine and refine initial outlined project plans and reduce technology risk such that a more detailed solution can be drawn up and more accurately costed. That is very important in terms of value for money, which a number of noble Lords have raised.
These studies will be completed within 12 months, and that is when we will move to the final selection process. It is very much worthwhile for these studies to take place before we make the final decision, but we still hope that the first demonstration project will be operational by 2014. In the mean time, we aim to launch the process of selecting an additional three projects by the end of this year. I can certainly reassure noble Lords that the lessons learnt in the first competition will ensure that the competition in relation to the three other projects will be accelerated.
Lord Teverson: I thank the Minister for letting me interrupt. Will he tell us how the European Union Hatfield project, mentioned by my noble friend Lord Wallace, will fit into the jigsaw of these competitions?
Lord Hunt of Kings Heath: My understanding is that it has won the potential of grant support from the European Union, and that the company is in discussions at this moment with the EU about when the funds can be transferred. So I think that the answer is that it should be seen to be in parallel with the competitive process, not in competition with it. Clearly, one hopes that it will be able to take advantage of the money that is being made available.
Lord Woolmer of Leeds: I may be wrong about this, but I understood that the European funding will really contribute only modestly to the initial consideration of it, and that the whole question of that then becoming a practical project plant and the transport, the pipeline and storage would certainly not be covered at all. Is the Minister saying that the Hatfield project would not be able to be considered in the competition for initial funding under the scheme that he proposes?
Lord Hunt of Kings Heath: I am not aware that it is in the competitive process, but I will check the details of that to make sure that I have not got that wrong. As I said, I think the money made available from Europe is quite considerable, though I accept that, when we are talking about the development of CSS technology, it is very expensive at the moment. I say to the noble Lord, Lord Dixon-Smith, that I take his point about the exemptions and I will certainly see that they are considered. I understand the point he is making, and, essentially, we have received a number of responses from different sectors about exemption and we will set out the detailed arrangements for the levy in regulations on which we intend to consult in the summer next year.
The noble Lord, Lord Oxburgh, is, of course, right about transportation. I agree with him that we need to think through those issues as soon as we can. On the issue of whether the technology is proven, I well understand the point he is making, which is that all the stages of CCS have been tried and tested. The question is much more scaled up: will it be technically and economically viable? That, it seems to me, is what these demonstration projects are all about. That is why we want to have a very proper and intensive approach to making those judgments. The aim is that by 2018 we will publish a report which considers the case for new regulatory and financial measures to drive the move to clean coal. In the event that CCS is not on track to become technically or economically viable, an appropriate regulatory approach to manning emissions will be needed.
Lord Wallace of Saltaire: I rise to ask the noble Lord to write to me about the announcement on the Hatfield project which says that it will go ahead thanks to a €180 million award from the European Union. Is it correct that the funds announced today will be matched by the UK Government?
Lord Hunt of Kings Heath: I do not know where the noble Lord got that information. That amount of money will potentially be made available to Hatfield from Europe, but I cannot go into the commercial details. The kind of competition on which we are embarking is extremely expensive and EU funding will not be sufficient to cover the cost of developing CCS in full. I will write to the noble Lord about the details on Hatfield, but I am a little reluctant to say any more about it at the Dispatch Box tonight. I hope that noble Lords will understand that there are clearly commercial sensitivities on that, but I wish Hatfield every success. I have had a number of meetings with the chief executive of the plant in the past few weeks to discuss these issues.
Lord Dixon-Smith: The noble Lord sounds as if he is moving away from the issue of CCS. He has not said anything about the possible finite nature-I hope definitely finite nature-of the financial arrangements that have been put in place to support the CCS experiment.
My noble friend Lord Woolmer asked whether the Government would set an obligation on supplies to source CCS electricity as they have done for renewables. We have no plans at present, and the technology is at a demonstration phase. We would expect the carbon price to drive widescale deployment of CCS in the medium to longer term. I know that there are issues about the carbon price. We are well aware of that, and I have had representations from other technology sectors about the current price. It is not long to Budget and we are publishing two pieces of work. There is, first, a roadmap to 2050 and secondly, the energy markets assessment, which will look at some of those issues and set out an initial analysis of whether further interventions are necessary. I should not say any more about that until it has been published.
My noble friend asked about oversizing pipes for CO2. We are prepared to consider using the levy to fund investment in pipelines sufficient for full capacity of a coal-powered station using CCS for its entire capacity. The balance that we have to draw is that we need to limit the potential cost to consumers of CCS demonstrations. That is where we are at the moment. On the point raised by the noble Lord, Lord Dixon-Smith, the CCS incentive is specifically designed to support demonstration projects. It is not a deployment mechanism and it would therefore be used only for demonstration projects. We are talking here about the demonstration aspect of CCS. I hope that reassures him. We are not talking just about coal. I agree with my noble friend Lord Woolmer on that matter. I was glad that we made an amendment in the other place to signify that the levy could be used for gas. Given the scale of emissions from coal, we think that it is better to start with coal. However, I have no doubt that if CCS proves to be technically cost-efficient and viable, we shall seriously consider extending it to gas.
I say to the noble Lords, Lord Teverson and Lord Wallace, that I understand why there is considerable interest in emissions performance standards given their direct relationship to emissions reductions. However, we think that there is a problem with taking this step now before the technology needed to reduce emissions has been demonstrated, given the impact that that would have on investment in new fossil fuel power stations. That is why we think that our approach of taking through the clean coal framework is the most effective way to deliver the emissions reductions that we need in the power sector. As I have said, if CCS does not prove to be all that we had hoped, we would have to consider what other interventions had to be made. We shall debate this on Monday in the context of the national policy statements, but it is worth pointing out that the climate change committee did not recommend the introduction of an EPS at this time. Both the CBI and the TUC have told us in no uncertain terms that introducing an EPS now would significantly undermine plans for investment in new fossil fuel generation plant. That is, and has to be, a real concern.
My noble friend Lord O'Neill and the noble Lord, Lord Palmer, made some telling points about price. I would very much like to come up to the noble Lord's modest home in Scotland. Equally, he is very welcome to visit my very draughty Victorian house in Birmingham,
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The noble Lord, Lord Teverson, asked me what impact the measure would have on fuel poverty numbers. Clearly, it will reduce the number of households in fuel poverty but I cannot estimate the precise number until the exact detail of the policy is finalised. We will be consulting formally on the structure of the scheme in the summer. At that point we will have an estimate of the impact, but it should not be insubstantial.
I say to the noble Lord, Lord Palmer, in relation to the points that he made about rural fuel poverty, that we are, of course, aware of the difficulties of people who live off the gas grid. We intend to look at those issues in the context of the consultation that will take place in the summer.
I was interested in the comments of the noble Lord, Lord Jenkin, about data protection issues. My understanding is that, in order to comply with data protection principles, the sharing of data has to be proportionate and it must result in a benefit for those whose data are shared. That principle means that data matching was not considered a suitable method to find consumers eligible for assistance under, say, the CERT scheme. The primary benefit available through CERT is energy efficiency measures, and as these measures may not be taken up by those who have had their data shared, data sharing in those circumstances is less likely to be proportionate. However, the energy rebate scheme is a pilot data-matching programme designed to give eligible customers an automatic benefit in the form of a rebate on their electricity bills. So the result of sharing consumers' data in this instance is that they will receive an automatic benefit and, therefore, it is considered proportionate to share these data. I hope that is clear to noble Lords. I suggest that I write to the noble Lord, Lord Jenkin, and perhaps offer him a meeting to talk this through further because I thought he raised a very substantive issue.
Lord Jenkin of Roding: I am grateful to the noble Lord and I have listened very carefully. As I said to his noble friend Lord McKenzie, I should like to see the correspondence between the department and the Information Commissioner to see why he describes himself as "broadly" satisfied.
Lord Hunt of Kings Heath: It is an interesting question whether correspondence between a department and the Information Commissioner is releasable, but
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Moving on to the joyous question of Ofgem, I hope my remarks about Ofgem are always considered to be uncontroversial. I thought the noble Lord, Lord Jenkin, put it right. Clearly, there is a major debate to be had about where we need to go in terms of regulation and the kind of market that we need to see in operation over the next two or three decades. It is clear that the political parties have views on this and I suspect that whoever is in the Department of Energy and Climate Change post-election will possibly be seeking a first-session Energy Bill in which these issues may well be discussed. I appreciated the comments of my noble friend Lord O'Neill about the regulatory mechanism and I should like to make two points. First, the Bill, as the noble Lord, Lord Jenkin, said, has some sensible measures in relation to Ofgem which I believe we should accept. Secondly, the work that we are doing with the energy market assessment, looking at future market arrangements, will provide the basis for coming to a view about the regulatory arrangements we need to have in future. I will make one point to the party opposite in view of its own paper. There is always going to be a price to intervention. We have to be careful not to inhibit investment by the companies in this sector because, one way or another, we need billions of pounds of investment to take place now and to increase steadily over the next few years.
We come to the two final areas. First, my noble friend Lord Judd has persuasively put the case for environmental issues to be considered alongside energy issues. I do not disagree with him at all. In essence my department, in accepting the responsibility for climate change and energy, understands those goals and the tensions that sometimes arise between them. However, as for protecting consumers as the grid infrastructure is developed-the noble Lord mentioned the national parks and so on-what I would say to him goes back to our debates on the national policy statements. It is clear that many of these proposals will go for consent to the Infrastructure Planning Commission, which will have to take local impacts into consideration. I am sure that the commission will pay close attention to my noble friend.
Lord Judd: I am grateful for that reply and my noble friend is right to make that point regarding the IPC, but will he spell out that this will apply also to the transition arrangements, because a lot of people will be affected over a long period by them? Just to get words of reassurance from the Government on this would be very helpful.
Lord Hunt of Kings Heath: I can reassure him that that indeed is one of the points that the Infrastructure Planning Commission has to take into account. Very often the major local impacts are during construction. That point is very well taken. The IPC will also have to take account of the cumulative impact. In Cumbria, for example, if three sites are potentially suitable for nuclear power development, the cumulative impact will have to be taken into account alongside all the advantages that such a development might bring.
The points made by the noble Lord, Lord Reay, if I may summarise them, come back to the issue of cost. I do not think that we will agree on this, although I accept the point that he raised about transparency. Every intervention in the energy sector by government through these kinds of mechanisms of course has a cost which is met by energy consumers. I agree with him that it is right that consumers should understand that; I do not think that we can go ahead with all these mechanisms without the public understanding it. It is up to Governments to be open and to communicate why this is happening. I should also say-the noble Lord, Lord Lawson, is not here to dispute this tonight-that the noble Lord, Lord Stern, is absolutely persuasive on the issue that it is much better that we make these interventions now, because the longer we leave it, the
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I had the privilege of attending briefly the end of a seminar on peak oil chaired by the noble Lord, Lord Oxburgh. Not everyone has a uniform view on peak oil, but one thing that is for sure is that the trends in oil prices are likely to increase. That is why there is a persuasive case for investing in the kind of energy policy that we have, even though it has an impact on energy prices for consumers, in the short term at least. That is why we need to ensure that we have value for money, it is why we need a good regulatory system and it is why, above all, the contents of the Bill, although it is short, will make a modest contribution to those ends.
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